Thoughts on Growth — Mar 2, 2018

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1. The freemium conversion ladder and other growth lessons from the Dropbox S1

WHY IT MATTERS

One of the (many) standouts from Dropbox's S1 is how their freemium model has enabled them to reach $1.1B in revenue while sustaining a steady ARPU ranging between $110 and $113 while spending relatively little on sales and marketing.

Here's a recap of the key takeaways that you should care about if you're in growth:

500 million registered users (300 million of which are "estimated" to "have characteristics" / potential to become paying users)

11 million paying users

30% on a Business Team plan

50% on an individual plan

40% of new Business teams had a member who was previously a paying subscriber on an individual paid plan

90% of revenue from self serve channels, but they're already hinting at a potential expansion into an enterprise-like, sales-driven model

“no customer represents more than 1% of revenue” — which signals lots of revenue sources

notably, their estimated sales efficiency is 1.1 compared to Box's 0.4 (most SaaS companies hover around the 0.8 mark; the higher the number, the more you're getting from each sales and marketing dollar)

So, freemium all the way, right?

LEADER OPINIONS

I ran this by another pioneer in freemium SaaS, Suhail Doshi CEO & Founder @ Mixpanel, and he offered some useful nuance:

“Yes, Dropbox sells into businesses, but the numbers show that it's still a large consumer play. They want to lock in low churn enterprise revenue (which is the future) because consumer revenue is always subject to higher churn and at risk of commoditization.

Benchmarking Dropbox against Box isn't an apples-to-apples comparison. Yes, their S&M costs are lower thanks to freemium, but they also have to worry about churn every single month. As they ramp up to larger and longer accounts, which they've indicated they may need to do in order to keep growing, we'll naturally see those numbers shift. They'll be able to grow revenue and retention in new ways, but may need to spend more to get there, and that's fine.”

Ada Chen, Co-founder @ Notejoy and ex SVP Marketing @ SurveyMonkey, also had this to add:

“The Dropbox numbers definitely align with my previous experiences at companies like SurveyMonkey and LinkedIn. You see major efficiency advantages from this model (look at Dropbox vs Box in terms of marketing spend), but you have to watch out for the long-term cost of supporting all of these freemium users.

Based on the benchmarks that I've seen, the freemium conversion rate is often in the single digit percentages. Dropbox's S-1 suggests 11M paying out of 500M users, a 2% rate. What's the cost of paying for storage and maintenance for all of these free users? Don't forget to work that into your CAC.”

2. New Snap ads coming (and how good are they anyway?)

This in and of itself isn't super meaningful for the vast majority of us who aren't operating in a qualifying company. But, it's a move that echoes their overall advertiser-friendly attitude (a great point on this below in the Leader Opinion).

2. Ability to purchase or subscribe straight from Stories with just a swipe

The ability to buy or subscribe with a single motion, directly from Stories, is currently in beta, and presumably part of Snap's big push to augment its ad offering this year. The applications for e-commerce are the most straightforward, but there's potential for a variety of advertisers whose target demo fits with Snap's audience (under 35, US and UK-centric, males and females — more demo stats here and here.)

LEADER OPINION

I brought in Sam Wheatley, who runs growth marketing @ Noom and was previously director of ad ops at Social Fulcrum, to share his insights.

How should growth people be thinking about Snap ads as an opportunity area?

The important thing with Snapchat is to approach it with the right expectations. If you're looking for "the next Facebook" - keep dreaming. If you're looking for a new paid channel to add moderate incremental scale with solid performance, Snapchat could be a great fit.

My personal experience with Snapchat has been significantly better than that of Twitter or Pinterest. That's true in terms of the platform's infrastructure, learning curve, and results.

Couple of key things to keep in mind:

Traffic from Snapchat tends to be lower quality than other paid channels, but that problem is manageable due to very cheap top of funnel costs. A big part of the perceived drop in quality is actually due to the user psychology of Snapchat traffic, which based on funnel data, seems to be very different than most other paid channels. That's something I'm excited to understand better and learn how to take advantage of moving forward.

Unlike Facebook, which had to wait nearly a decade for large-scale advertisers to bring their budgets online, Snapchat's channel evolution (in terms of competition and prices) will happen much faster. This is based on how much the paid environment has evolved AND the fact that Snapchat is starting with a much smaller user base than Facebook + Instagram.

If you're just getting started with paid, Facebook and AdWords are still likely going to be your best option. However, if you've been managing multi-channel paid campaigns for a while and are struggling to find the next jump in growth, Snapchat has the potential.

Is now a good time to experiment with Snap ads? Or is it still too early to be a meaningful channel?

Now is the perfect time to get started with Snapchat for two reasons:

Their ad product, through the development of their Snap pixel, lookalikes, and other "basics" we've come to expect, has matured enough to be ready for scaled performance marketing.

The channel is only going to get more expensive over time as more advertisers go live (which Snapchat is aggressively pushing). The window to gain a competitive advantage by learning the platform and scaling a campaign before everyone else does is now.

And one final thing. I've been very impressed by the Snapchat team, from the account-level reps to those shaping ad product direction. Everyone at Snapchat knows they're trailing Facebook and is working hard to catch up. The recently-announced ability to buy or subscribe with just a swipe is an exciting example of that.

Their current vibe reminds me of the classic Avis ad campaign, "When you're only #2, you try harder. Or else." And advertisers get to reap the rewards.

3. Who's buying vs using your Saas?

SaaS is extra fun/tricky for growth because the of the layered buyer because your advocate isn't always your buyer, and your buyer isn't the one who pays the bill at the end of the line.

We thought this was worth calling out this week because of its implications for how you think about activation, engagement and retention given the multiple different personas you're working with at different stages of the buying journey.

LEADER OPINION

Prior to Reforge, Brian Balfour was VP Growth @ Hubspot, so I knew he'd have a perspective on the buyer vs user question.

“When a SaaS company realizes that they're dealing with multiple layers of decision makers and users, their typical reaction is to try to speak to all personas and use cases at once. This is the opposite of what you should do because it dilutes the message to the point that it doesn't appeal to any of them.

Instead, teams need to be conscious of the "entry points" for each of these parties. SaaS growth teams need to work towards specific language, visuals, and activation experiences for each persona in a journey from discovery to evaluation to decision to purchase to usage.

By the way, SaaS companies targeting enterprise companies tend to be biggest offenders, so this is crucial to keep in mind now that we're seeing more companies move towards enterprise buyers. Don't just make the experience sweet for the decision maker or buyer; the end user is a key advocate for you and they have to have a good time too. Otherwise, you'll see complaints from the end user to the decision maker, which creates negative drag and eventually triggers churn.”

4. When do you need a (dedicated) growth team?

“Growth teams” is a favorite topic that comes up in every cohort of the Reforge Growth Series.

This makes sense as we hear about what dedicated growth teams have been able to accomplish at companies like Facebook or Uber.

But, taking a step back, do we all really need a growth team? And if so, how big should it be?

LEADER OPINION

I asked Adam Fishman, VP Growth & Platform @ Patreon, for his thoughts on the needs driving a growth team, and how it evolves.

“Whether you need a growth team or not is stage-dependent. If you don't have product/market fit (really early stage) it's useless to have a growth team. You'll kill the product with good growth tactics OR you won't be able to retain folks well enough to grow.

I think you need a growth team for a lot of the company lifespan until you've well-evangelized the growth mindset and metrics/outcomes-focused attitude across the entire org (specifically in product, engineering, marketing and design).

Some people say everyone should own Growth, and I agree... but, the reality is that you have to hire or train that approach. In an established company, this is easiest to do if the seeds of growth start within one team and blossom outward. You can model the behavior you want when it originates from a single team.

A few other considerations:

You need to strike a balance between metrics, metrics, metrics and longer-term product investment.

I don't think that the Growth team should be a completely separate part of the org distinct from Marketing or Product... I think it should roll into one of those leaders and my preference is product (although this depends on how you grow).

I disagree with the "bigger growth team = more growth." Just because you're running more experiments doesn't mean you're running them well or prioritizing appropriately. I'd rather have a small, high-performing team until you've really established the growth DNA.”